A real estate contract or purchase and sale agreement is a legally binding, written document to buy and sell property.
This document controls the transaction and the Buyer and Seller should be familiar with certain terms. These terms should be agreed upon before signing any written document. Below are some terms that a closing lawyer will review before closing:
- Parties Names and Contact Information. Parties are important because recourse is against those named in the contract. The Seller must be the current owner of record. The Buyer must be ready, able and willing to buy.
- Subject Property Location or Legal Description. Defining the subject property is important because it binds the Buyer and Seller to the specific property described. This can be changed by an amendment executed by both parties.
- Purchase and Sale Price. The price is important because it binds the Buyer and Seller to the specific price referenced. This can be changed by an amendment executed by both parties.
- Earnest Money. This is the Buyer’s good faith deposit to purchase the property and provide additional time for financing, due diligence and inspections.
- Closing Costs and/or Seller Credit. Standard closing costs are settlement fees, title fees, transfer taxes and recording fees. The contract deals with which party is responsible for each fee. Sometimes the Seller will contribute a specific amount as a credit or concession to the Buyer.
- Due Diligence Period or Inspection Period. This is the time allowed for the Buyer to complete research on the property. Traditionally, if the Buyer cancels during the due diligence period the earnest money is refunded.
- Settlement Agent or Closing Attorney. This is usually the choice of the party responsible for paying the closing costs. This can be changed by an amendment executed by both parties.
- Closing Date. This is the day the Buyer is to complete the purchase and the Seller is to transfer title. This can be changed by an amendment executed by both parties.
- Special Stipulations. This include extras such as a home warranty, termite letter, refrigerator, washer or dryer. Any special item to be included as part of the purchase and sale.
Typically, a real estate agent or broker will help prepare the written contract or agreement. If no agent or broker is involved, an attorney can help prepare the contract. The parties will have to agree on the terms. Then an attorney can draft a written contract for the parties to execute.